Educational Articles

Dow-30 Earnings: Microsoft – First Quarter Fiscal 2014

Charles Clark
| October 25, 2013

Software giant Microsoft (MSFT – Free Microsoft Stock Report) has reported revenues and share earnings of $18.5 billion and $0.62 for its first fiscal quarter (ended September 30th). By way of comparison, we had estimated the company's top and bottom lines at $17.8 billion and $0.55 a share. The financial performance met with broad investor approval, and MSFT stock moved up nicely on the news.

Revenues from the Devices and Consumer segment moved forward some 4.2% in the quarter, benefiting mainly from increased hardware volumes (Surface and Xbox) and a good showing from search advertising and the popularity of Office 365 Home Premium. Transactional revenues at Xbox LIVE advanced at a good pace, as well. That said, Windows license revenues were down, as expected, though there was more activity on the consumer side than we had envisioned. Meanwhile, lower revenues in licensing and higher costs in hardware pressured the Device and Consumer segment's gross margin, with the figure coming in at 60.1% versus the 68.6% logged last year.

The Commercial segment saw revenues increase 9.8% in the September period, with licensing advancing 7.6%. Microsoft's strength in the datacenter remains, as corporations continue to virtualize their computer systems and move more deeply into the cloud computing arena. On point, like its competitors, business from cloud products and services grew at a very high rate. The commercial segment continues to be the largest contributors to Microsoft's gross profit, adding $9 billion to the $13.5 billion total, versus $4.5 billion for Devices and Consumer.

Adding it all up, Microsoft got a good start to fiscal 2014, and we have moved our full-year revenue target to $83 billion, up $2 billion. That said, we have reduced our share-earnings call to $2.70, down $0.05, as the hardware side of the Devices and Consumer business will take some time to get up to full speed. In the meantime, this stock pays a handsome (and growing) dividend, and the company seems set to continue buying back shares. We advise owners of MSFT stock to continue holding their positions.

About The Company: Microsoft Corp. is the largest independent maker of software. It develops and sells products for a wide range of computing devices. The company also sells the Xbox video game console. Revenue sources in fiscal 2013 were as follows: Microsoft Business, 31.8% of total; Windows & Windows Live, 24.7%; Server and Tools, 26.0%; Entertainment & Devices, 13.1%; Online Services, 4.1%; Other, 0.3%. Research & development spending as a percent of 2013 sales was 13.4%.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.